This dissertation has been submitted by a student. This is not an example of the work written by our professional dissertation writers.
Offshore outsourcing has been popular in many European countries like Sweden, Germany etc. It is all about getting a project manufactured in some other country primarily for reasons of getting a better quality at cheaper rates. One of the most popular choices as a vendor for IT project outsourcing is India and China. This is because of cheap and good quality IT manufacturing in these Asian countries. Countries like US and United Kingdom have already outsourcing thousands of projects every year and they are expected to increase in the future. But as every coin has two faces, outsourcing also faces many problems especially when it comes to getting the job done the way it was expected to be done. As a result of cultural differences many of the projects fail or are not up to the customer expectation. As a result of which several outsourcing partnerships do end up with a bad note. Similarly there is another promising field which has helped make multimillion dollar companies. This is Multilevel Marketing. Companies like Amway made fortunes out of their multilevel marketing business model. Although there are certain problems associated with multilevel marketing chains . People don't wan t to go for these kinds of businesses because of less profits made by people down the line. But still multilevel marketing has made a lot of businesses grow unbelievably. It is a surprise that till now offshore outsourcing has never been linked to multilevel marketing. This is what has motivated the writing of this thesis. This thesis is all about using Multilevel Marketing as a business strategy to create an offshore outsourcing company between Sweden and India.
The thesis starts with the discussion of various aspects of offshore outsourcing in the field of IT. It mentions the successes and failures of outsourcing projects and the reasons for the failures. It does an analysis of what problems companies find in selecting an outsourcing vendor. The next part deals with multilevel marketing and the various problems associated with multilevel marketing chains. Case studies of different companies are taken into account here.
Finally the last section of the thesis deals follows a template to develop a business model that would use multilevel marketing to create an offshore outsourcing company. This business model is a complete business plan in terms of marketing, finance, HR and operations.
In UK and many other European countries around the world, outsourcing has been quite popular in the past few years. India, Pakistan, Philippines, Russia and China are the major destinations for moving IT offshore. These countries provide the required skilled technical labour pool and countries like India get good Government support since IT is a major foreign exchange earner for India. Language proficiency, cultural flexibility and time zone advantages also are some of the factors for the growth of offshore IT industry. Other factors working to the advantage of Pakistan is the educational system and also the high quality of their workforce. According to the CMM (Capability Maturity Model) designed by SEI (Software Engineering Institute, Pittsburgh), most of the Level 5 companies are situated in India.
According to research firm Gartner Inc., by the end of 2004, one out of every 20 U.S.-based IT jobs will be sent overseas. Gartner also predicts that, by 2004, more than 80% of CIOs and CEOs in the U.S. will have considered offshore outsourcing, and more than 40% of them will have at least dabbled in outsourcing, either offshore or near shore (in Canada, Mexico, South America, and so forth). Forrester Research predicts that $136 billion in wages, or 3.3 million jobs, will move offshore in the next 10 years.
Offshore outsourcing is a smart business strategy, plain and simple. The top three reasons to outsource offshore are to reduce and control operating costs, free internal resources for other purposes, and improve a company's focus.
There is another concept here that has taken up pace in the last few years. This is called Multilevel Marketing. Multi-Level Marketing (MLM) opportunities seem to be everywhere you turn these days, not only online, but in every part of your life including school and church, where fervid entrepreneurs lobby even their bible study groups to buy their product or service. MLM is essentially any business where payouts occur at two or more levels. For instance, if you make a sale, both you and the person who recruited you, will get a portion of the proceeds.
There are some advantages of MLM that big companies like Amway have used to create multimillion dollar companies. One of them is unlimited market potential. The business scheme generates sales by people. So every new dealer is not only a customer but generates more customers down line. Amway has a total of 0.25 Million people working for the company.
The following are the advantages for the people to join multilevel marketing schemes:
- More time to spend with the children, to take vacations, and to do more in life.
- Security provided by self-sufficiency against the many changeable and unpredictable factors in today's economy, including corporate downsizing, government cutbacks, inflation, corporate profit taking, increasing requirements for high tech competency in the job market and job discrimination against older workers.
- Opportunity to enter the business for a low initial investment of money. No risk!
- No need for specialized skills or higher education. Anybody can do it!
- No marketing expenses or "cold calls" to strangers are required because your friends and associates are your first prospects. The first recruit is usually the neighbour next door or a close relative in most of the cases.
There are certain reasons why many companies are scared in offshore outsourcing. Some of the reasons for this are fear to lose control of the project, language issues and delays in seeing problems solved. Other risks come from giving outsourced staff access to IT systems within your network. Problems associated with offshore outsourcing such time zone differences also point to one conclusion. Offshore outsourcing is always not worth the headache. Recently, Dell has taken back one of its outsourcing project back from India because of the same reasons stated. Although outsourcing is still popular and would increase in the future but it would only be focused to big companies. This is because large companies which have more capital can manage to take the risk of outsourcing in spite of the problems like cultural differences and fear of loss of control of the project. But the small companies cannot easily outsource across the borders because of language and cultural barriers. They do not have the capital to pay big companies in India and Pakistan who are currently outsourcing and as a result end up in giving their projects to local companies. Thus the border of small companies is limited to their own market and quality of labour.
Is there any solution or business model that solves the problems faced in offshore outsourcing?
The first objective of this thesis is to create a business plan that would solve the problems of outsourcing and multilevel marketing. The following would be the focus areas while dealing with the problems of offshore outsourcing however is not completely without problems. Many clients face a lot of problems in the process and there is a sense of dissatisfaction. The causes for the same can be listed as below.
- Unrealistic expectations of the customer due to over promising during sales process.
- Divergent interests of the customer and the provider.
- Inflexibility to align the offshore relationship to the change in business needs.
- Cultural gap.
- High rate of turnover of people managing the outsourcing process.
- Many multilevel marketing schemes are just pyramids of people where a new recruit is no more than a customer who buys the products and is never able to grow higher in the hierarchy.
- 99% of the people at no profit position: In big multilevel chains it is a proven fact that 99% of the people are at a no profit position. Many of them end up with a loss.
The second objective of creating this business plan is to solve the problem of multilevel marketing. The following problems would be focused in the thesis:
The purpose of this thesis is to create an organization that brings closer business cultures around the world. This would not only bring the world closer but also give small businesses an opportunity to expand and become global. As it expands it would move across borders exploring new opportunities. This would be done by collaborating offshore outsourcing with multilevel marketing.
Due to limited time given to write the thesis, it is limited to providing a proposal for such business plan but a lot needs to be added to the plan for bringing such a company into the market. This is the first stage of starting such a business. If any opportunity comes in future this business plan would definitely be implemented.
The following steps would be adopted for the creation of this thesis.
- Doing a complete research on offshore outsourcing and multilevel marketing schemes going on in the world at the moment. It also involves reading the text necessary to complete this plan. This would include all multilevel marketing business plans and various outsourcing plans developed in the past. An Essential reading needs to be done of the books in the field of marketing and finance that are needed to create this plan.
- Creating a close link and feasibility between marketing, human resource and financial issues required to create such a plan. Discuss the issues that are need to practically implementing such a business plan.
- Generate a complete business strategy based on the study conducted combined with the experience gained to achieve the purpose of this thesis.
2.0 Theoretical Background
As discussed in the background above, the following is the discussion of the problems of outsourcing.
a) Job loss
Every year countries like USA, UK and other countries are loosing a lot of jobs due to offshore outsourcing as result of which there is job loss and dissatisfaction among IT workers in these countries. Offshore outsourcing can also lead to myriad other problems directly and indirectly related to the bottom line. Here are just a few of those problems:
- IT security: There are few ways to gauge the security risks posed by offshore workers. One risk is the potential loss of intellectual property and business-process secrets. China, in particular, lacks laws to protect companies' intellectual assets and is suspected of having a major espionage program targeted at U.S. technology firms.
- Business continuity: Large terrorist networks exist in the Middle East and Southeast Asia, where many U.S. companies look to outsource IT labor. Outsourcing to a third party in one of these countries means risking that daily operations could be disrupted. A political situation, such as armed conflict between Pakistan and India, could also shut down offshore operations.
- Customers' fears: Customers need reassurance that their data is safe. It can be difficult to convince customers and potential customers that their information is secure with a company thousands of miles away, in a nation that may be unstable.
2.1 Common outsourcing mistakes
The six most common outsourcing mistakes that companies make while dealing with outsourcing are as follows:
a) Underestimating the cost and complexity of managing an outsourcing relationship
Most companies under invest in the ongoing governance and management of the service provider relationship and underestimate the time, money and people it takes to manage far-flung operations effectively. The companies must establish a dedicated team of people, on both ends, to ensure compliance and adherence to agreed-upon service levels
b) Overestimating the overall cost savings
Labor and other costs are lower elsewhere, but companies need to keep an eye on an upward. Wages in India, which accounts for the bulk of outsourcing work, are rising 10% per year. Although the inflation rate in India is approximately 7% per year therefore the net increase in salaries from the point of view of international clients is around 3%.
c) Selecting the country before understanding objectives
Before deciding on a country or service provider, the company should first determine the cost of running the business processes and objectives. If the service levels and costs are already competitive, it won't make sense to farm it out. It is important to study the expertise of each potential partner, considering proximity, costs, cultural and language barriers, telecom infrastructure and tax laws among other factors, before making a decision.
d) Failure to develop an effective communication program for employees:
The loss of a job, and therefore a livelihood, is emotionally charged, and it's worse when you're being displaced for cheaper labor overseas. Laid-off employees are often bitter, and those that remain can be demoralized, fearful that their job is next to go. It is crucial that companies let employees know they are valued. Companies should not require the soon-to-be-displaced employee to train their replacement.
e) Selecting a single source provider
If possible, it is important to spread the risk between service providers and countries. A company wouldn't want to get caught flatfooted if your only claims processing center in China gets destroyed in an earthquake. For maximum efficiency, having software developers sprinkled around the world so someone is always working on the next project.
f) Failure to put retention plans in place for talented people.
Competition for talent is heating up in India and elsewhere, as more American and European companies move work outside their borders. Experts say talented engineers and software developers can easily shuffle between companies, and these employees should be secured. Work with your service provider or offshore subsidiary, many American companies have established international development centers in order to maintain your best assets. Offshore outsourcing saw a major boom the end of the 1990s. Factors like Y2K and dotcom boom really gave a quantum leap to offshore outsourcing. However after Y2K dried up and then the dotcom crash, the growth rate started to slow down.
2.2 Successful outsourcing
Successful outsourcing relationship requires a lot of professionalism and good management. While fundamentals of good management don't change, the way they are executed changes to a great extent. Some research has led to the following results in solving outsourcing problems. It is as follows:
" Think of cross-cultural outsourcing as a marriage. You have two companies walking into a deal with completely idealistic expectations of what the relationship will be like. Both parties go into the relationship thinking they're going to shape it a certain way and just work things out as they go along. But according to Joe Santana, Director of Organizational Development at Siemens Business Services, there are certain things that you have to have a good foundation for in the beginning.
"You don't want to enter into a relationship without having some kind of understanding of where the other person is coming from," he said. Santana, founder of a multicultural global network of IT service providers, outlines below some cross-cultural outsourcing best practices that he has gleaned from working with multicultural global companies.
a) Have native members of each culture in the engagement teams
Ideally, at least one pivotal member of the buyer's engagement team should be someone who is native to the supplier's culture and well versed in the buyer's culture. This can significantly reduce the number of surprises that may occur because of cultural differences. "If you don't do this," according to Santana, "you can run the risk of saying or doing something that is offensive or counterproductive. For example, in some cultures, when you say you want something 'right away', it means today. In other cultures, it may mean next week or next month."
b) Invest in programs that broaden the cultural awareness and sensitivity of all the engagement and governance team members
This training won't make the participants cultural experts. It will, however, provide them with what they need to build openness to other perspectives, awareness of the multiple ways that their behaviors can be interpreted, and the ability to more fully leverage their differences and commonalties as opposed to having them serve as performance "blockers."
"Cultural sensitivity training doesn't make you an expert in another person's culture, but it makes you aware that you're looking at the world through a filter. It makes you sensitive to other people's interpretations," Santana said. "For example, there are cultures where it is considered rude to have eye contact with a person of authority, and there is our culture where if you don't make eye contact when you explain something it's occasionally taken as a sign of not being honest or not clear or not sure of what you're talking about."
Some cultural differences can result in project implementation problems. "In our culture, for example, if we ask an engineer to do something, and it's not feasible, say, because the technology just won't allow it, he will tell you that. But in other cultures, it would be rude to say that, especially to a person of authority." So the person ends up saying he'll see what he can do just to avoid a flat-out refusal. "So the project is delayed and the managers apply pressure to no avail, because that person just couldn't come right out and say what couldn't be done."
c) Employ electronic tools to emulate the type of data sharing that happens when teams are located in one place without having to resort only to travel.
Web collaboration suites like Live Meeting and WebEx provide a robust array of tools that enable the creation of a meeting room environment where you can share slides, hand-outs, and/or work on a white board.
d) Employ desktop video to emulate the face-to-face discussion without having to resort to travel
Being able to see the person we are talking to is a key component of effective communication, especially when we need more information to supplement the gaps resulting from differences in language and culture. When people see each other clearly the interactions are impacted by some of the 7,000 facial expressions that we share across cultures (Brian Bates/John Cleese, "The Human Face," BBC 2001). Face-to-face-communication is in fact known to increase understanding, especially when there are cultural differences involved.
e) Budget for travel
Team management across multiple time zones will requires some amount of travel. Any expectation of no travel as a result of using technology is unrealistic. At best the above steps will enrich the communication that occurs between traveling, but it will not totally replace the need to visit and share ideas while sitting in one physical location from time to time"
2.3 Global offshore market scenario
a) New companies and countries are emerging as viable competitors
Although Indian vendors dominate today's offshore market, with an estimated 80 percent to 95 percent of offshore revenue, countries like Ireland and Israel are building their own successful capabilities and many foreign companies are planning to compete for the American market.
b) The level of projects and processes moved offshore is becoming more sophisticated
Five years ago, U.S. companies primarily sent cost-sensitive, trailing-edge projects offshore (e.g., legacy maintenance, conversions and migrations). As the offshore firms proved themselves, their customers began to send higher-level IT work offshore (e.g., applications and Web development, enterprise integration, ERP work and e-business development).
c) Software processes have been refined
Processes to enable global software development efforts or offshore application management have been tweaked and streamlined. Although Indian companies may not use any special coding tools or techniques beyond what U.S. enterprises use, their meticulous approach toward these processes — preparing documentation, planning for alpha and beta releases, establishing user acceptance procedures, regression testing procedures and collecting metrics during development activities — has aided in the industry's success.
d) Essential communications infrastructure issues are being addressed
The offshore industry is highly dependent on first-class communications to sustain current and future growth. Voice and data communications from Indian data centers to the United States or Europe are excellent.
e) Cultural issues are better understood
Cultural issues play a significant role. The use of offshore contractors has in some cases provoked substantial resistance from programmers fearing for their jobs. Simply importing foreign personnel to customer sites opens the door to many abuses--and potential liability. For these reasons, the Indian market is de emphasizing customer-based engagements in favor of performing the preponderance of work at the offshore site.
f) The advantages have become clear
Cost savings was the primary reason clients have adopted these arrangements in the early 1990s. The major drivers in the past two years have gone way beyond cost — although current economic conditions have caused cost to once again become the No. 1 reason customers are exploring offshore outsourcing today. Other drivers are:
- Time to market
- Available and flexible talent pool
- Higher productivity
g) The cost dynamics and workforce mix are changing
Many countries, such as India, derive their competitive cost advantage from performing highmargin activities offshore. The general goal is to perform 70 percent to 80 percent of programming activities offsite (which increases margins, while lowering the overall cost to enterprises) and achieve approximately 50 percent of export revenue offsite (equal split with onsite revenue).
2.4 Offshore Development Center (ODC)
Business demands for IT solutions have never been greater or more complex. They include client-server, data warehousing, ERP implementation (both back office and front office), sales force automation, knowledge management, and Internet (Intranet, extranet, e-commerce). The IS managers know that there is a tremendous shortage of key qualified IT resources that is growing significantly each passing year. Given the demand and the skills shortage, offshore outsourcing is the perfect solution.
There are several factors that clients cite for offshore outsourcing. At the heart of all these is the inability to find qualified IT resources. Clients also mention accelerated delivery / time-to market factors, higher productivity and quality (often significantly better then they can deliver themselves), fixed price contracts, and significantly lower costs.
Keeping in view these critical factors the offshore development concept was designed. Under this concept it provides the entire infrastructure and an agreed size full-time IT team to the client at a dedicated Offshore Development Center (ODC). A part of the development team may be located on site at the customer's facility. The processes, methodologies, and standards of the ODC are designed keeping in view the client's concerns on offshore development and development requirements. There are longer-term commitments and depending on the client's requirement the center can be expanded to meet the growing needs.
2.5 Qualities of a good vendor
For outsourcing to give the best results, the vendor must:
- Provide trained staff
- Have operational excellence
- Offer knowledge transfer through well-planned training schedules
- Consider factors like: Internal dynamics, Timing, Changes in internal or business circumstances during the project definition and planning stages The client on the other hand, must:
- Ensure that the vendor's business model and skills match his requirement
- Provide complete support to the vendor
- Quantify the crucial measures, service levels and expectations
- Not have expectations for unrealistic levels of performance
- Not set cost structures that prevents the vendor from making a profit.
- Not put constraints on the outsourcing vendor's methodology
- Not undercut staff to a point where the technology transition turns into a catastrophe
It is increasingly becoming important for companies to outsource their software needs to offshore development centers. Any company that is considering establishment of ODC should have a thorough understanding of their benefits and limitations along with a strong management plan. A disciplined approach in establishing ODC, moving less critical projects first and then gradually moving more complex / critical projects later can save lots of heart-burn and revenue.
2.5.1 Criteria for selecting an outsourcing vendor
The following elements are critical to the selection process in order to establish and maintain a successful relationship with an offshore provider.
a) Quality culture fit
The hiring IT organization generally desires the strong quality culture displayed by many offshore outsourcing firms. However, there is often a problem between internal company quality processes (or lack thereof) and the offshore firm's passion and commitment to standardization and quality methodologies. It is critical for the hiring IT organization to recognize that effort will be required on the part of internal resources to work with the offshore firm in a manner that truly leverages the benefits of quality standards and methodologies. The mature offshore outsourcing firms have demonstrated commitment to quality and continuous improvement by their dedication to achieving the highest levels of ISO and CMM certification. Buying organizations should ensure that this commitment to quality is not only resident in far-away offshore facilities, but also is delivered locally with each project engagement.
b) Maturity and stability of offshore operations:
An important risk factor to consider is the maturity and stability of offshore operations, both from the individual provider perspective and from the country location perspective. The first consideration should be the desired characteristics of the outsourcing firm that will help minimize overall risk. For example, is it important to a hiring company that the offshore outsourcing firm be headquartered and managed by a Swedish entity? If the hiring company is not Sweden based, is it important for the offshore outsourcing firm to have a committed base of operations in their country. What is the longevity and track record of the offshore operation? What are the depth, satisfaction level, and repeat business of the offshore firm's client list? What are the current skill sets of the offshore provider and what is the track record for hiring new skill sets to meet evolving client needs?
It is also important to evaluate the offshore country's infrastructure, political, and legal support for offshore IT services as this can dramatically impact the offshore firm's ability to provide sustainable, uninterrupted, and secure offshore services.
c) Ability to bridge culture and process gaps:
There have been well-publicized reports of the cultural differences that exist when dealing with an offshore provider. These cultural differences can be reflected in differences in communications, work ethics and habits, and approaches to problem solving/resolution. Since many hiring firms do not have significant experience in managing diverse team interactions, it is important to look for an outsourcing firm experienced in helping to bridge this gap. Outsourcing firms who most successfully bridge this gap have a strong U.S. project management presence, utilize local on-site resources to gain sensitivity to a client's culture and unique project requirements, and follow a strict methodology for knowledge transfer.
D) Flexibility of service provision:
The hiring firm will want to give strong consideration to the flexibility of the offshore provider in meeting their needs. Does the offshore provider have the ability to ramp up required skill set resources to meet delivery needs?
2.6 Monitoring ODC Activities
With the advent of Internet and point-to-point leased networks, it is possible to monitor the offshore projects / developments at micro / macro level. The following are the typical methods of monitoring remote offshore development:
- Online document reviews
- Weekly status reporting - tele & video conferences
- Monthly management reviews
- Milestone based management review visits
- E-mail & fax
- Performance based Dashboards
- 78% end an outsourcing relationship abnormally
- 71% of the above hire a new outsourcing vendor
- 56% rate the quality as worse than in-house or downright unusable
Fortunately there is now adequate experience and analysis in place to define a set of best practices for offshore outsourcing, meaning that these figures should improve radically over the next couple of years.
Many have pointed to the fact that for outsourcing to work, a sense of partnership must be present. Also, the importance of a well-defined process for outsourcing is often brought up. However, concrete implement able advice, tools and processes are harder to come by and you typically have the choice between learning by doing (which is costly) or hiring hotshot consultants with hefty price tags.
2.8 Small companies Outsourcing market
With small and mid-sized companies planning to spend more money on technology, they have become the target market for IT giants on the lookout for new growth opportunities. An interesting trend is shaping up in the global application software industry, especially in the segment serving the small/mid-sized niche.
- Leading the trend is Microsoft, which after saturating the PC/OS marketplace is looking for new growth opportunities. In a recent Business Week article titled "Is Small Biz Microsoft's Next Big Thing?" the author talks about the software giant's ambition to wring $10 billion in revenue from this emerging market by 2010, up from just $300 million today. It is estimated that the opportunity is huge.
- Gartner's research predicts that small and midsize companies worldwide will spend $420 billion on technology this year; less than 25 percent are using the kind of sophisticated applications Microsoft is now selling. The rest rely on basic accounting or tax packages or on programs such as Microsoft's own Excel spreadsheet—which requires a lot of customizing.
This $420 billion is making all the big software vendors drool. In an online survey of 612 IT professionals worldwide (most of which are decision-makers), 72 percent of participants revealed they are outsourcing several IT functions, with 14 percent outsourcing 50 percent or more of their IT functions.
"The survey results confirm what people have been speculating about the trend toward outsourcing, especially the amount going overseas," says Dan Morrison, cofounder, CEO, and president of IT toolbox. More than one third of participants, 36 percent, stated the top strategic reason for outsourcing was the lure of cost-savings, whereas 15 percent cited special skills and/or services as the top reason. Of the 31 percent of respondents who outsource abroad, 21 percent farm IT functions out to India. Some convincing reasons for outsourcing to the salary savings in India alone are compelling. The average IT salary for U.S. respondents is $80,286 per year, whereas Indian counterparts are averaging nearly one tenth of that at $8,593 per year, according to a separate salary survey by IT toolbox. The salary survey reveals IT employees in India are getting substantially larger raises than their counterparts in the U.S.--more than 60 percent of IT employees in India are boasting annual salary increase of more than 10 percent. And, 10 percent of IT respondents in India claimed to be getting salary increases of more than 40 percent. In the United States 60 percent of IT respondents are receiving an annual salary increase of only 5 percent or less, the salary survey concluded.
3.0 Risk in outsourcing - A review on Stanish group case study
The Chaos report published by the Standish group in 1995 is one of the most quoted studies in the history of the software industry. The Standish Group's research showed that more than 30% of all projects were cancelled before completion. Further results indicated that more than 50% of all projects ran over budget by almost 100%. The Standish group concluded that the direct cost of failures and overruns were just the tip of the iceberg. The lost opportunity cost was feared to be trillions of dollars in the United States alone. Results from the CHAOS study indicate that the increasing use of formal methods, use of architectural frameworks, and disciplined project management is driving the increase in project success. This is a valuable lesson for any software development project. For an outsourcing project, however, this lesson is of fundamental importance. The reason is that the risks that make software projects fail are so much higher for outsourced projects.
There are always risks when developing software and many of these risks exist regardless of whether you are in sourcing or outsourcing. Yet, there are certain risks that are amplified by the outsourcing business model. The most important of these are:
- Developed software does not meet business needs
- Loss of intellectual property and control over proprietary data
3. 1 India as an offshore location
In the drive to find suitable offshore locations, US based companies assess countries based on capabilities of workforce including educational qualifications, English language capabilities, and wage differential and location attractiveness including technology infrastructure, country risks and time zone preferences. As can be seen from the figure, from McKinsey & Company, India is emerging as a highly preferred location for US based companies. Some of the reasons why India is emerging as a leader are:
- Availability of skilled labor at significantly lower costs
- Over 1 million students graduate from college every year
- About 7 million students enrolled in higher education
- About 200,000 engineers graduate every year
- Second largest pool of engineers and scientists in the world
- Wages in India are 75 - 90 % lower than in other western countries depending on the particular skills
- Special incentives for infrastructure
- Time difference facilitates a 24X7 operations
- Stronger recognition of India because of the brand equity created by leading IT services players
- Support of local and federal governments
- Duty free import of capital goods are permitted for off sourcing companies
- Slight inadequacies with the infrastructure
- Uncertainty over geopolitical risk
- Perceived proximity to other unstable nations
Some of the challenges that India faces are:
The first point is being addressed with the continuous improvement of infrastructure. The second and third points are more perception than reality. India is the largest democracy that has not been involved in a war in the last 25 years.
3.2 Multi-national companies
Multi-national companies, especially those in the banking, financial services and airlines industries, set up captive units about 5-6 years ago to take advantage of India's large, high quality resource pool and low cost structure. Since then, many of these units have scaled up rapidly.
GE Capital, for instance, has close to 10,000 people in Mumbai and Hyderabad who deliver services such as processing of mortgage loans, insurance claims & payroll and credit card collections. GE Capital's Indian division was bought out up to 60% by venture capitalists of India in the year 2004.
World Network Services (WNS), a subsidiary of British Airways, has about 1,400 people in Mumbai and Pune providing various back-office services. It is estimated that the captive units of American Express and Swiss Air have over 600 people each. Barring a few exceptions, the above players are subsidiaries of the parent group and essentially cater to in-house requirements.
3.3 Healthcare off sourcing from India
As shown above, the healthcare sector is significant in size and continues to grow rapidly. Healthcare organizations from the provider side such as Billing companies, Hospitals, Collections companies, and IDSs(Intrusion detection system) and from the payer side such as TPAs(Transient Program Area), MSOs(Multiple System Operators), and Insurance companies are actively looking to off source some of their operations. Reasons why organizations are looking to off source are:
- Reduce human resources related costs by 40-60 %.
- Improve operational effectiveness with 24X7 operations.
- Significant operating cost savings that positively impact budgets with zero capital investment.
- Obtain service level guarantees for agent productivity with error rates below industry benchmarks.
Healthcare organizations are currently off sourcing processes including charge entry, coding, benefits verification, payment posting, denials management, contractual pricing adjustments, A/R management, insurance follow-up, collection agency reporting, patient collections follow-up and payer claim processing. Due to the large, well-qualified labor pool, Indian healthcare processing companies have been able to focus on quality control, training, productivity, and well-defined processes that add value to healthcare organizations.
The cost benefits from off sourcing could be classified into three areas:
- Direct cost reductions: This is the result of payroll reductions including benefits and taxes.
- Indirect cost savings: This is the result of long-term savings in the form of computers, overhead costs and other costs.
- Productivity gains: One of the benefits of outsourcing is that through service level agreements and better management, productivity gains and quality could be achieved.
3.4 Six steps to minimize risk (Source FSA- Federal Services Authority)
Similarly the FSA has introduced new guidance on outsourcing, suggesting six steps companies need to follow to minimize their risk exposure and to position them to cope with potential problems. These steps are:
1. Strategic decision to outsource
At this stage, the strategic risk and rationale for outsourcing should be assessed. A company that is planning to outsource should undergo an internal revision to ensure that it is making the right decision that fits with the company's overall strategy. Time spent at this early stage should help identify potential future problem areas.
2. due diligence process
It is a company's responsibility to ensure that "a supplier is competent, honest, and financially sound and has relevant knowledge and expertise." At this stage, the FSA would expect financial due diligence, quality of management due diligence, and systems and controls due diligence.
Two additional important activities that the FSA recommends that companies undertake are cultural due diligence and business continuity due diligence.
3. Contract and service level agreement
An outsourcing company should always have a formal contract and a service level agreement with its supplier. Among other issues, these documents should address management information, service penalties/credits, escalation procedures, use of subcontractors, and rights of access.
4. Change management
During the process of change, a company's risk profile can increase significantly. Thus, the FSA believes that it is important to carefully plan and effectively use project management or change management techniques in relevant cases, such as when a complex outsourcing arrangement involves the transfer of large numbers of staff to a service provider.
5. Contract management
An outsourcing company should appoint individuals responsible for managing the contract and the relationship with the service provider. During the life of the contract, periodic reviews should be undertaken to ensure the risk level associated with the arrangement is still acceptable.
6. Exit strategy and contingency planning
The contract can either come to its natural end or be terminated before this happens. In either case, an outsourcing company should be prepared to quickly set up new arrangements with minimal disruption to business. In doing so, a company should consider various alternatives: bringing outsourced activities back in-house, continuing with the same provider, or conducting a tender for a new provider.
3.5 Choices for a client company
BPO is a buyer-driven market. Especially today, there is more demand than supply. Two factors have caused this imbalance. Firstly, many of the early BPO start-up suppliers are now in the process of recapitalizing. Secondly, some of the most astute outsourcing suppliers are the Big 5 accounting firms. Some of them are expected to head out on their own because of federal regulations. This leaves very little scope for companies to outsource non-core activities to a BSP.
There are various alternatives to tackle the issue.
a) Choice Solution
- Choose an existing BSP
- Create own market
- Having a Partnership with a firm that will make the necessary capital investment for outsourcing.
- Joint venture with an existing supplier
- Sharing with a supplier who will bear the risks and rewards
A deeper and closer look at each choice reveals some interesting developments.
Choice 1: Choose an existing BSP
If a company can find a BSP with the requisite skills to handle BPO, the company can directly negotiate with it. This will bring a great advantage to the company since finding a BSP in a drought market is extremely difficult. This will not only help the company to start the BPO process instantly but also see the results quicker.
But there is a catch in this scenario. Due to lack of choices to the company, the BSP may offer its services at a premium which the company may not able to bear.
Choice 2: Create own market
Buyers who believe they have a first mover advantage can capitalize on this opportunity. If the company top management has a vision that one day a larger market will develop, they can create their own outsourcing company with 100 percent ownership. Creating your own outsourcing company works only if the board and the senior management clearly understand the outsourcing model. They must also be willing to make the capital investment to generate the kind of leverage that makes outsourcing attractive.
Unfortunately, the list of success stories in this model is too short. The reasons are simple:
- Senior management decides to concentrate on their core business function than strengthening the non-core business areas
- Lack of support from the top management
- Lack of capital funding
- Lack of vision on the new process for emergence as a new business process
Choice 3: Partnership
The buyer has the required processes. He needs to find someone with a seasoned management team that understands the outsourcing principles and has experience in implementing the processes along with the equity and form a partnership. This model allows outside capital and new process to flow into the company. This partnership works well with a company which has been a leader in BPO outsourcing for years. Its leadership understands the model and knows how to govern its suppliers. This is crucial when creating a new partnership with a supplier.
Unfortunately even this model has its own flaws.
Choice 4: Joint Venture
A company wishing to outsource its non-core activities can have a joint venture with an existing supplier or a consulting group that wants to become a BPO player. Joint ventures work only when a strong governance program acts as the glue that holds the participating companies together. Governance is the major bottleneck where joint ventures crack. Conflicts may arise if the process owner wants to own all the equity in the new supplier. Joint ventures may also face trouble sustaining capital formation unless the partners have agreed in advance to these continuing expenditures for process improvement.
Choice 5: Gain-Sharing
The buyer is not interested in owning the supplier but it wants to own a portion of the success the outsourcing supplier earns by bringing something new to the marketplace. Buyers need to be compensated for the risks they shoulder in the work along with the supplier in the new venture.
This is the easiest and fastest route to success for a buyer. Buyers can achieve their goals of lower costs and improved service much more rapidly. The supplier bears the risk and shares the upside potential.
In addition to private equity firms, companies with well-honed core processes which are eager to enter the outsourcing world are good gain-sharing partners. These companies want to become suppliers by wrapping an outsourcing offering around their process. The core objectives of any
BPO function through a BSP should satisfy at least the following:
- Fast implementation and ROI: Companies need solutions that are quick to implement and can guarantee results.
- Low cost to implement and maintain: Companies are always on a lookout for a "tested model," one that maximizes the utility of their current systems with little or no fuss.
4.0 Multi-Level Marketing
There is another concept here that has taken up pace in the last few years. This is called multilevel marketing. The has never been related to outsourcing in any way and only deals with direct sales or developing chain of dealers and suppliers.
Multi-Level Marketing (MLM) opportunities seem to be everywhere you turn these days, not only online, but in every part of your life including school and church, where fervid entrepreneurs lobby even their bible study groups to buy their product or service. Even police departments have been invaded by MLM schemes. The San Diego police department actually had an illegal pyramid scheme discovered within one of its departments!
4.1 Types of marketing chains
a) Multi-Level Marketing
MLM is essentially any business where payouts occur at two or more levels. For instance, if you make a sale, both you and the person who recruited you will get a portion of the proceeds. This is the most commonly used term partly because its definition fits within the legal restrictions for this type of business.
b) Network Marketing
Network Marketing means that a distributor network is needed to build the business. Usually such businesses are also MLM in nature in that payouts also occur at more than one level. The term Network Marketing is sometimes also incorrectly used to indicate that the business uses a network of product suppliers in order to offer a broader selection of products. Businesses that describe themselves this way are usually trying to differentiate themselves, suggesting that their program is superior to other programs.
c) Consumer Direct Marketing
Consumer Direct Marketing is a deceptive term that labels the distribution chain as consumers rather than distributors. In such businesses the distributor must also buy the product for their personal use.
d) Seller Assisted Marketing
Seller Assisted Marketing Plans is a term used by California law to describe a variety of business forms which include MLM. A minimum $500 investment must be involved to qualify as a Seller Assisted Marketing Plan. These are the various kinds of marketing channels that have bee used by big companies like Amway, Avon cosmetics etc as part of their business models. Multi level marketing is the wave of the future. Eventually all products will be sold by MLM. Less than 1 percent of all retail sales are made through MLM. Much of this sales volume comes from new distributors who are setting up their new business. MLM operations don't have huge advertising and marketing budgets so they can afford to pump a lot more dollars into developing their products, resulting in a higher quality product that can still be sold at a lower price than comparable items sold through conventional means.
Product pricing is spiraling upward, partly due to the massive influx of MLM opportunities in an already over saturated market. To attract distributors, companies compete for distributors by offering better compensation plans. As the percentage of each product sale that goes toward commission increases, so does the margin between companies cost and wholesale, and thus the retail price increases as well.
4.2 Network Chain: How it works (Reference 
There are an endless group of recruits available to be down line distributors. If each distributor just recruits 10 people and those 10 recruit 10 more, to a depth of 10 layers, it would take 10 billion people to fill this distributorship, well in excess the earth's population. Here is an easy diagram to see what population is needed (given that every person on earth wants the product or service:
If one changes the equation to only recruiting six at each level, the numbers still become astronomical very quickly:
Now let us talk about the traps in the field of MLM. Many people have not made any profits at all and the following are the precautions that need to be answered before entering such marketing schemes. A report reveals that in United States 99% of all sales representatives each year in the sample of companies analyzed earned less than $14 a week in rebate income. This figure is before all business expenses, inventory purchases and taxes are deducted and therefore represent a significant financial loss for virtually all who join. Additionally, the report shows that on average no net income is earned by MLM distributors from door to door "retail" sales. If all the losers over a five-year period are included in the calculations, the failure rate rises even further. Less than one in one-thousand will be shown to have profited. MLM companies obscure their astonishing failure rates by counting only "active" participants and limiting the figures to a one year or even shorter time frame, thus concealing the factor of the ongoing and mounting losses of new investors. Most MLM's do not reveal any data at all on actual average incomes. Of the two categories of the MLM income opportunity, rebate income and retail sales income, the most publicized are the rebates, commissions and bonuses paid out on the purchases by "downline" recruits. This is the source that the companies claim has "unlimited potential" based on the opportunity to derive payments from an "endless" chain of recruits. MLM allows all distributors to recruit others and qualified distributors to receive rebates on the purchases made by multiple levels of recruits that recruit more recruits.
The actual commission payouts on a per-10,000-sales-representatives shows not only that virtually no recruits earn rebate profits but also that the MLM payout schemes transfer the lost investments of the great majority of participants to a tiny number of organizers at the top of the recruitment chains. A special supplement is provided on the rebate data from the oldest and largest of all multi-level marketing companies, Amway/Quixtar. The analysis for Amway/Quixtar is presented on a per-300,000-distributor basis. It reveals the same pattern of 99+% MLM companies have numerous ways to obscure the fact that most are non-retailing Operations disguised as "direct selling" companies:
- Some MLM companies calculate total purchases of sales representatives and then project an average "retail profit" without verifying if any products are actually retailed or not, what price they were resold for or whom they were sold to. While retailing to consumers is publicized and claimed, internally the companies' pay plans are based entirely upon wholesaling only to the distributor recruits. Whether any retail sales ever occur or not, the upline recruiters are paid rebates only on the downline's wholesale purchases, never on retail pricing charged to the enduser.
- Some companies claim they "require" retailing by their distributors, but no systematic method is used to audit retailing activity. That a company would have to "require" selling by its salespeople reveals the inherent flaw in the MLM model and its tendency toward operating as a pyramid recruitment scheme.
The following calculation predicts how MLM generates profits. The math factor can be illustrated in a simple 6-level chain in which each person recruits just 5 people. At least three levels of recruits (5 + 25 +125 = 155) are needed for each participant to begin to achieve a profit based on override commissions from the purchases of the "downline."
Since only those with three levels below them are profitable, only the Top Level person and the individuals in levels 2 and 3 qualify. Each of the people in next three levels below does not have enough "downline" to generate a profit. (Those in Level 4 each only have 25 in their downlines. Those in Level 5 each have only 5 people and those in Level 6 at the bottom have none. This means that only 31 out of 3,906, or less than one percentage in the six-level chain, have as many as three levels below them and are profitable. More than 99% are unprofitable based on their position. This basic formula holds true no matter how much further the chain extends.
Approximately 99% are at the bottom of the chain where profit is not possible. For example, if the scheme recruited one more level, Level 7, another 15,625 participants would join. The total would now be 19,531. The number in profitable positions, Top, and the individuals in Levels 2, 3, and 4, would grow to 156, and this number would still equate to less than 1% of 15,625-person organization
Yet, even using the MLM industry's own restrictive method of accounting, analysis of available data reveals that more than 99% of all "active" consumers who invest money and time in multilevel marketing never earn a profit. Some lose hundreds, others thousands of dollars. And still others are drawn into financial ruin gripped by the widespread belief, which the MLM industry has carefully cultivated, that the multi-level marketing business offers the best opportunity for earning a living and becoming wealthy.
Multi-level marketing is not the same as direct selling any more than it is franchising. Avon and Tupperware are direct selling businesses, but not multi-level marketing. Multi-level marketing is a specialized business model. It differs significantly from traditional direct selling in its unique and characteristic policy of authorizing every active sales representative to recruit others and to earn override commissions from the purchases of generations of recruits in a multi-tiered chain.
This use of the "endless chain" of recruiting is the main point of controversy. It is the characteristic that invites the financial abuse and deception. The override commissions paid directly by the company to recruiters are the primary source for the promised incomes in MLM, while retail sales profits are the primary source of income in traditional direct selling. The MLM management chain is not the same as management structures used by traditional direct selling companies. They can organize entire countries with four levels of managers overseeing a direct sales force that retails directly to the consuming public or to business end-users. In MLM companies, the number of levels expands "infinitely" as upper levels are awarded bonuses on the purchase volumes of extended generations of 12-level chains that have "broken away" when they reach purchase-volume thresholds. In this way, many MLM's function as "endless" chains. The multiple levels are each paid some commission on each purchase made by new recruits. Usually between 40-60% of the price paid by the new recruit is redistributed to the recruiters above the latest entry level. In many cases, the total amount of the wholesale price that is paid to the "upline" exceeds the maximum gross profit the new recruit could earn if he/she were to retail the product at full price.
4.3 Case studies
Figure 12: Estimated Melaleuca Payouts (Reference -Page 19)
For each 10,000 Melaleuca distributors:
- Less than 1% (82 people out of 10,000) received over half of the total company payout. (The other half of the payout was divided among 9,918 others.)
- the mean average payment to of the bottom 99% of Melaleuca Distributors who remained active for one full year was $9.66 per week (before expenses and taxes are deducted - resulting in a significant loss).
- the mean average payment to all the Melaleuca distributors was $21 per week - before expenses and taxes.
- 95% of Melaleuca Distributors who remained active for one full year earned less than $24 a week. The mean average of that bottom 95% was $6.63 a week.
b) Cyberwize .com
For each 10,000 Cyberwize distributors:
- 34% of the entire payout went to just 13 individuals out of each 10,000 "active" sales representatives.
- the mean average income of the bottom 99% of the active Cyberwize sales representatives was $5.61 per week (before expenses and taxes are deducted - resulting in a significant loss).
- Cyberwize.com's Disclosure states that 67% of all active sales representatives made no commissions; that is, out of each 10,000, 6,700 made no rebate income.
- The bottom two levels of the pyramid, out of a total of 11 levels, constitute 90% of all the sales representatives.
- Out of each 10,000 sales people, the top 4 individuals earned as much in total as the bottom 9,000 combined.
4.4 Additional Data on Rebate Income Averages
As statistically small as they are, the percentages of those who get to the top in the examples offered in this report do not represent "odds" for succeeding.
- 16 out of 10,000 at Nuskin
- 1 in 10,000 at Nikken
- 30 in 10,000 at Melaleuca
- And 1 in 10,000 at Cyberwize.com
4.4 Summary of Retail Income Findings
- Findings are based on a 1994 sample of 21 multi-level marketing companies, large and small.
- The sample constituted 5.2 million sales people and over $10 billion in "projected" retail sales.
- The average potential retail sales gross profit for all companies was 33%.
- Maximum Average Gross Profit for all these sales people was $12.19 per week, before expenses and taxes.
- This $12 a week would be possible only if all sales people sold all their inventory on a retail basis, purchased none of the goods for themselves, never gave away any samples and were able to sell all the goods at full retail margin without discounting at all.
- When actual costs are factored, including inventory, samples, sales costs, and discounting, and true volume of retailing are calculated, the average net profit would be near zero or a significant net loss.
4.5 Bottom Line: No Rebate Profit, No Retail Profit
The lack of retail income potential -$12.19 per week maximum on average - must now be seen along with the findings of the rebate income:
- The mean average payment to the bottom 99% of "active" Nuskin distributors was $7.43 per week.
- The mean average payment to the bottom 99% of "active" Nikken distributors was $5.32 per week.
- The mean average payment to of the bottom 99% of Melaleuca Distributors who remained active for one full year was $9.66 per week.
- The mean average income of the bottom 99% of active Cyberwize sales representatives was $5.61 per week.
4.6 Inadequacies in MLM structures
4.6.1 Inadequate Gross Profit and High Price of Products Restrict Retailing
Nikken, for example, offers only a maximum of only 20% gross profit on suggested retail prices of its entire product line. Considering the costs involved and the nature of the products, this small gross profit is an inadequate incentive to support necessary investments by distributors in retail marketing.
Out of this potential maximum of 20% gross profit, a distributor must finance the tasks of prospecting, making sales presentations, ongoing business investments, providing customer support and marketing literature, providing free samples, carrying some inventory, at least for demonstrations, and making some deliveries of the product (unless the product is purchased from Nikken directly). He/she may have to collect payment and take back returned goods as required.10 Other costs that must be covered by this small gross profit include business licensing, accounting (Nikken itself charges accounting fees ranging from $24 to $360 a year depending on rank), travel, phone, computer and other technology fees, etc. A retail margin of at least 50% or (100% or more mark-up over wholesale cost) is needed to cover product and operating costs and allow for a reasonable profit. Companies such as Avon offer retail margins of this amount. Beyond an inadequate gross margin, the retail-selling price must be competitive to comparable products. A perusal of MLM goods reveals many to be far more expensive than comparable goods sold in stores.
4.6.2 Limited Choice to Consumer Reduces Retailing Opportunity
Choice is restricted in the direct "person-to-person" method of selling and more people prefer to purchase goods of this type in stores where there is wider choice and no pressure upon personal relationship.
4.6.3 Marketing Policies Restrict Retailing
Most MLMs place severe restrictions on the marketing activities, which raise retail sales costs and limit the exposure of the sales people. These restrictions include strict prohibitions against displays in retail stores and mass advertising. Additionally, the MLM Company itself does not engage in national advertising to support the brand or educate the customer about the product or the company. This burden and cost are carried entirely by the individual sales representative.
4.6.4 No Retail Sales Training Offered
The typical MLM company offers little training or support for retail selling. The focus and priority are placed on training, motivating and rewarding the recruitment of more and more sales people.
4.6.5 Competitive Product Availability Prohibits Retailing
Many MLM products are available at lower cost from other sales outlets, including retail stores and the Internet. Nikken-branded products, for example, are also available from current and exdistributors at discounted prices.
4.6.6 Proliferation of Distributors Dilutes Retail Sales Opportunity
A characteristic of nearly all MLM sales and marketing is that they advise sales representatives to solicit their closest friends and relatives to also become distributors. This is equivalent to a McDonalds' franchise owner seeking to set up competitive stores on the same street. The proliferation of additional distributors within the same social or geographical market must inevitably lead to retail discounting, a scenario that would severely damage retail sales efforts. A strategy of encouraging each distributor to authorize more local competitors would only make business sense if overrides from the new competitor's investments were paid to the recruiter by the franchisor and outweighed the loss of retail business that the additional competitors would cause. This is precisely what the MLM compensation programs do.
4.6.7. Greater Long Term Benefits from Recruitment than Retailing
A sale by a MLM distributor to a retail customer is a one-time event with no assurance of any future purchases of that company's products and no assurance that the end-user will purchase more of the MLM goods from that distributor. A newly recruited distributor, on the other hand, is effectively locked into the sponsorship structure, and all future purchases of that new recruit will accrue benefits to the distributor who did the initial recruiting. Additionally, the new recruit, as opposed to the end-user, is often exposed to the MLM company's promotions and materials to enter an automatic monthly ordering program, recruit more distributors, buy additional inventory, etc., which the individual end-user is not.
4.6.8 Top-Loaded Pay Plan Rewards Recruiting
Most MLMs use a clever pay plan that pays more money - per sale - to the "upline" than to the people actually doing the work of selling the product or recruiting new sales people. So, in addition to the structure limiting the number of winners to a tiny few, the pay plan also insures that whatever money the "losers" invest goes immediately to those at the top. This is necessary since most of the recruits will quit in less than a year after experiencing significant financial losses.
4.6.9 Advancement Tied to Recruiting
Whatever opportunity exists in the scheme for profitability is based on being positioned high on the chain. Recruiting is the only way to advance to the higher levels where the leveraged high incomes can be gained. Even as millions of consumers are solicited into MLM and then quit after losing money, most do not understand why they lost. They are shown the luxurious lifestyles of the top promoters and are told that "anyone can do it." The promoters convince them that they personally "failed" and that it was "their own fault." Most have no idea of the sheer scale of people joining, losing and then quitting. They are led to believe that they are unusual in their "failure." Consequently, they not only do not complain to the government authorities but they do not even warn friends or relatives to stay out of MLM. Shame and disappointment are covered up with silence. The recruitment program continues largely unabated. As has been previously illustrated, the massive failure rates among those who invest in MLMs have almost nothing to do with the individual recruit. These multi-billion-dollar consumer losses are due to the pyramid business model. Retailing is unfeasible and the recruitment-based income plan is designed so that most will lose. It cannot be otherwise. For a few to win, basic mathematics requires all others to lose. "Anyone" cannot do it. The "endless" chain schemes do not, of course, go on forever. Nor do they continue until they quickly exhaust all possible new recruits. While the schemes are structured as endless chains and make promises to new recruits as if they were "limitless" and could fulfill the promise of success to all, in practice, the chain keeps breaking at the bottom and being "repaired." Large-scale failure is, in fact, necessary. If most did not quit, but continued to recruit, the earth would soon be entirely filled with MLM distributors in a very short period of time.
The solution to this problem lies in a business strategy that can solve some of these problems in outsourcing IT thus vanish the fear companies have in offshore outsourcing. This business strategy would take the form of a company which would be a trusted third party for both the countries. The difference between this company's business model and the business strategy of other companies providing such outsourcing solutions is drastic. This company would work on the principle of multilevel marketing. This would not only solve the problem of loss of jobs in the country which is outsourcing to another country but would also create more jobs in both the countries that are in the outsourcing deal. Also this new business model would create a trustworthy supply chain for both the countries thus resolving the problems associated with lack of trust. For countries like Sweden who are presently in economic crisis this could be a brilliant opportunity to create new employment. Also international students who come to Sweden every year leave the country as soon as their course is over. They do not add up anything to the Swedish foreign reserve since they do not pay any fees and also since there are no job opportunities in Sweden they have no other choice but to go to other countries. Thus Sweden is facing a huge brain drain every year. This business model would also help Sweden retain this international brain to create more jobs for their own Swedes. This way outsourcing combined with multilevel marketing could be the future for many countries .The following is a proposed solution to the problem which would be improved further to develop the best possible solution to this problem.
5.1 The business plan: Description of the business
This business plan is a part of a thesis proposal that is supposed to integrate three promising fields:
- Multilevel marketing.
- Offshore Outsourcing
As discussed above in the background all the above three fields have emerged as promising fields in the last few years. They have created huge profits to companies around the world. Till now no company has ever tried to link offshore outsourcing with multilevel marketing. This business plan involves the creation of a company which would try to solve problems associated with MLM and Offshore outsourcing.
Outsourcing has been done in the field of HR, manufacturing, marketing, IT etc and lot of other fields to India. But small companies still tend to remain within their local market not being aware of the immense cost and quality advantages of outsourcing. Those who are aware of the advantages do not wish to enter into such a relationship with other countries like India because of culture differences among which language and corporate culture play an important role. Also these companies do not have enough capital to invest in big companies like TCS, Wipro Spectramind, TataInfotech ,infosys etc who currently capture a majority of the high segment of the market. These are the kind of companies we would target acting as a solution provider to their problems. They are a huge market with most companies in Sweden being small companies with less than 10 employees and India which has around a half a million small companies with cheap and good quality labour. To cover this big a market we would follow a 3-level marketing network. The way this network would work is covered in the marketing plan of this business plan. The business plan would follow a set template. This template would answer the following questions thus leading to the business plan information and statistics.
1. What are the legalities in your business form?
The company would be a general partnership company.
2. What is your business type?
This business is of a company that would provide services to those who seek solutions in the Field of offshore outsourcing.
3. What is your product or service?
There are thousands of companies in India who have technical expertise in the field of manufacturing IT. But due to lack of global management skills and less know how of the Scandinavian market do not get offshore projects. Thus they manufacture for local companies.
The same is the case with small companies in Scandinavia who do not trust Indian small businesses to outsource their production lines. Although they have started trusting Indian companies in IT manufacturing and IT enabled services
Now what this business of ours would do is appoint a network of marketers who would approach companies around Sweden and India to do an extensive marketing research. Once a set of 100 small companies in Sweden is researched then based on their needs and what has been gathered as their requirements a set of more than 200 companies would be researched in India. They would be selected as offshore production companies on the basis of quality, cost and fulfilment of the requirements of Swedish companies as stated by the reports of marketing research from Sweden. Our facilities would include:
- Highly customer focused outsourcing solutions
- No tension of monitoring the production across the border. The company would do it all for you including delivery.
- Initial 10 Swedish companies would have a money back guarantee if the production is not as per their requirements.
4. Is it a new independent business, a takeover, an expansion, a franchise?
This is a new independent business.
5. Why your business will be profitable. What are the growth opportunities?
The following are the reasons why our business would be profitable:
- Large market: All companies in the world who want to expand their market want to enter into some kind of outsourcing. Most small companies in Sweden and India lack in one or more sectors of business management like marketing, HR, operations etc and thus are not able to expand significantly. Thus the market size is huge for our company to expand. Once Swedish market is completed there are other markets that would be entered into like Denmark, Norway, and Germany etc. to expand. Also in India every week 5 new companies open up out of which 4 are small businesses. 2 out of these four are capable of handling offshore projects provided someone takes the responsibility of a mediator between them and the company abroad.
- Business model: The business model that we would use is multilevel marketing network. This would be the first company in the world having such a management hierarchy for a business like outsourcing solution provider. Thus our penetration and expansion into the market would be much faster than any other company who enters the market with us. The working of this network chain would be further discussed in the personnel section of the report.
- Culture difference problem well managed: The sales representative that would approach the companies in Sweden would be the person who would be dealing with the project right from the beginning to the end. The sales representative would be a person knowing the language, culture and would develop trust in the mind of the client. The Swedish company would only have to explain what they need to be done in Swedish language. Once the contract is signed with this company, the sales representative would handle the project to the research team who would find out the ideal Indian company for this kind of a project using their expertise in the field. This project would then be handled by another Sales representative chosen by the team to approach the Indian company who would handle the project. He would be the person well aware of Hindi language, the language of the Indian company as well as their culture. He would explain the project to the company and would be involved from the beginning to the end. This way the basic problem of culture difference that comes up within offshore outsourcing would be solved.
6. When your business will be open (days, hours)?
In Sweden the company would operate 5 days a week, Monday to Friday from 8 a.m. to 6 p.m. In India the company would operate 6 days a week, Monday to Saturday from 9 am to 6 p.m.
a) What you are selling.
From the customer perspective, our customers are those companies who want someone to come and gather their requirements. Once those requirements are gathered, the sales representative would come back within 24 hours with a solution based on our cost analysis and the price that would be charged on before delivery for the project and with the time limit as agreed by the company in India. Now we would also be explaining to the customer in Sweden how his project would be handled in India and what expertise the company people have who are dealing with their project. The MLM Company would not be involved in any manufacturing ourselves. We would just be dealing with cross country collaborations with the responsibility of generating and delivering the best solutions around the globe for small businesses.
2. How your product or service will benefit the customer.
Most of the Swedish companies get their production of IT from other small Swedish companies. If the same manufacturing is done offshore in India the company would save 50 to 60 percent of the total cost incurred in production and also would get a much better quality. So our company would not be beaten on price and quality. As discussed in the background above, the companies usually have to choose a partner for outsourcing. They have to do a lot of research about the company and as a result many of the outsourcing projects end up abnormally. Our company would provide the following service to solve these problems for the customers.
- Initial contact
- Requirement engineering
- Selecting a partner
- Building a partnership
- Managing the project
- Delivering the result
a) Initial contact
The sales representative would meet the customer to make the initial contact. A 20 minute presentation would establish in the mind of the customer, the kind of services we provide.
b) Requirement Engineering
Once the customer realizes the need to outsource, the sales representative would fill up a form with the requirements and scope of the function that the company needs to outsource. The requirements would be analyzed by the service specialists and a proper definition and scope of the project would be established. The following questions would be answered in the requirement engineering stage of the project.
- What is the vision for the future?
- What do the business processes look like today?
- How do we want to change business processes in pursuit of the vision?
This would benefit the customer in the following ways.
- Minimizing risk
- Controlling cost
- Maximizing competitiveness and differentiation
c) Selecting a Partner
Many companies have lots of problems in selecting the right client for them because of lack of knowledge of their needs, the clients' capabilities, risk and cultural differences. This is where our company would find out the best solution for them. This is where out service is different from the services of other companies. From the database of companies already researched in India, the best solution for the kind of requirements established would be found out.
In addition to assuring that the partner is capable of carrying out an established software development process, there are of course numerous other aspects that are involved in partnership:
- Checking that the size of the potential partner is adequate
- Checking for relevant industry experience
- Checking for IT operations proficiency (network, backup, disaster recovery etc.)
- Checking for adequate language skills for each of the outsourced roles
- Considering geopolitical risk (regional stability, intellectual property laws, etc.)
Building a Transparent Partnership
In the end, successful outsourcing is about building a successful partnership between client and vendor. If the partnership is not there operating efficiency will never increase. Therefore the company would act as a mediator between the client and the vendor. The transparency between the both the parties would be created as is done in all other big outsourcing companies. Both sides would be having a clear view of which company is handling the project in what way. The vendor would also know which company it is making the project for and would be using our company to convey important information and status reports. Thus the project would finish within time and in healthy partnership.
- Clear and shared understanding of the client's business context. Our experience is that the clarity that a formal business model provides is invaluable.
- Clear and shared understanding of the client's technical environment
- Mechanisms, preferably semi-automated, that make sure that the agreed software development process is executed as intended.
- Clear and unambiguous measurements for performance, progress, quality and completion.
- Clear roles and responsibilities of both the client and the vendor
- Face time for the key persons and informal leaders of both organizations to support bonding across organizations.
Ideally measurements should be collected in an automated fashion.
d) Managing the project:
In case of any problems that the client faces like time delay, quality or loss of control of project, the project would be handled by our company according to the terms and conditions agreed while signing the contract. This is because the company would be using successful projects as a marketing tool to generate more sales. If there are problems then the company would contact the vendor and manage all change requirements. It would be our effort to deliver as much as we can .
e) Delivering the result:
Our company would be responsible till the delivery of the project and would issue a guarantee period for the operation of the project. Thus one successful delivery would lead to many other positive leads and thus the expansion of the business.
3. Which products/services are in demand; if there will be a steady flow of cash.
A single representative would arrange appointments with 2-3 companies in a single day. This makes it 12-18 companies covered in a single day since the Stockholm office would have a staff of 6 sales representatives initially. A single sales representative would also make at least 10 calls in a day to fix appointments with companies around Sweden. Based on the profits generated within a single sales representative, he would become a Manager of an office that the company would open for him to run and recruit his own staff. This is how the management levels will grow and expand through the markets.
4. What is different about the product or service your business is offering.
1) New service: Most other companies who deal with offshore outsourcing have their own production units and this charge much more from the customers. Thus small companies are not able to pay for such kind of services. Also they have expertise in particular fields and cannot enter into new segments of manufacturing or production like brochure design, printing etc. Our company has no production units of its own and can cover anything in the field of IT. The small companies who deal with all this in India are experts in their work and their talent can produce excellent results at much cheaper prices. Our prices are also flexible according to the buying power of the customer because we can always negotiate with the company in India to give a better price for the product. Thus the company would be a two way buyer seller negotiable market with us getting a share of the deal. The better the deal made, the more the profit. Now talking about the failure rate the company would definitely encounter around a 20% failure rate. What that means is 2 out of 10 projects would not be according to the client's expectations. This factor has to be kept in mind by the management of the company and plans would be made accordingly to manage the risk.
5.3 The Location
a) What are your location needs?
The company would have two offices initially:
- Bombay: This would be the head office because of cheap office space available in India. Also Bombay has got more than 10000 businesses and a lot of manufacturing is done near Bombay with expertise in dealing with countries cities like UAE , USA , UK and other European countries.
- Stockholm: The office would be centered in the outskirts of Stockholm where there is cheaper office space available. The reason for this is because the office would not be used to invite clients. The sales representatives would be on field most of the time and all the communication would be on mobile and laptops. The office space would be needed for training new sales representatives and managers and for making contact with the head office in Bombay.
b) What kind of space will you need?
The space would be a 75 Sq. ft. reception with a 100 Sq.ft. meeting room and a 200 Sq.ft. training room
5.4 Marketing plan
1. Who are your customers? Define your target market(s).
The company's target market would be small businesses in Sweden. These would be the companies which have less than 10 employees. 94 percent of the businesses in Sweden have less than 10 employees. Just 0.2 percent of businesses have more than 200 employees. A majority of the companies are not a full time job for the owner. At the same time, these companies are important for many reasons, not least that they are sources of renewal and development. The small businesses, by the definition above, have more than 60 percent of all persons in private employment in Sweden. The small businesses are primarily operating the local market. Of the small companies are only about a fifth of all employees in the manufacturing companies. Most small companies are in the service sector and the dominating sectors are construction, trade, hotel, restaurant and other private services. The service sector is polarized with on one side the qualified company services that employ highly educated labor (consultants etc.) and on the other side the service sector that are dominated by relatively low educated personnel (cleaning services etc.).
The small businesses stand behind a great deal of the total annual net contribution of new employment. When it comes to innovations and new technology there is a number of small companies that are extremely innovative. They often operate close to the universities. These are the kind of businesses that currently do not outsource due to the following reasons:
- Culture: Most of these companies deal with local customers and thus follow Swedish as their business language. They also have all their website information in Swedish. Thus they are only limited to the local market and thus carry out all their website development and other IT production in Sweden.
- Lack of knowledge of outsourcing: They do not see the how much money they can save if they expand their borders to outsource their marketing activities as well as IT production to India.
2. Are your markets growing? Steady? Declining?
The business model we follow is to start from Stockholm. Once Stockholm is covered then new office would be opened up in Frankfurt. If the office does not generate enough profit then it would shift it to another large market. The prime consideration before choosing a new market would be that the city should have at least 2000 small businesses and at least 1 new business growth rate every 1 month. This way the company would train new and new people to enter bigger and bigger markets.
The market on the manufacturing side is India. As new collaborations with companies and the business starts to run well, new office in Bangalore and other cities around the world would also be started.
3. Is your market share growing? Steady? Declining?
The business performance relative to our competitors can be measured by the proportion of the market that the firm is able to capture.
Market Share = Firm's Sales / Total Market Sales
Now the market of offshore outsourcing of small businesses is handled by independent dealers.
Most of these people deal with single dealers in India in which they have a share too. They use their personal contacts in countries like Sweden to grab contracts.
The market for the large businesses is in the hand of big companies. They have been dealing in this market for the last 20 years. But they are mostly involved in IT market and they have their own manufacturing units.
There are loads of Indian exporters who deal with import and export. But they are not the competitors. They can act as Indian manufacturers who produce for Swedish companies. The market share of any product can be modeled as:
I) Share of Market = Share of Preference x Share of Voice x Share of Distribution
ii) Share of preference
Offer to increase share of preference
- Lowest price guarantee: The Company would offer the lowest price guarantee. What that would mean in the unlikely event if anyone was able to find a company in the local area at a better price, we would beat it by 5%. Therefore the company would not be beaten on price.
- Money back guarantee: For the first 20 companies there would be money back guarantee. What that means is if the product is not as per the standards of the customer there would be a return of the full amount paid
iii) Share of voice
The initial marketing of the company would be through direct marketing and web marketing. The sales representative would be responsible to fix an appointment with the company and would be trained to go through the complete product. A virtual tour on the sales representative's laptop would be presented to the company's directors explaining how our service would help them.
5.4.1 Web marketing Strategy
The company would be outsourcing its web marketing to another company in India .They would be responsible for generating positive leads via web marketing .Integrating marketing and customer service efforts over multiple channels is often the most difficult task . The increased reach and other benefits of a multi-channel marketing program are lost if customers become confused or frustrated, such as when service representatives in a company's phone centre can't access a customer's recent web transactions or don't have accurate records of a customer's recent purchases in a physical branch or storefront. The company would coordinate its marketing message across all channels and synchronize all customer information between channels.
- Coordinating the company's own online and direct mail marketing efforts, and
- Integrating the company's marketing efforts with the services it would provide.
1. Coordinating Internal Online and Offline Marketing Efforts
Firstly the company's marketing messages in every channel would have to match and complement each other, to build the right overall brand image value proposition. The online channel would recognize which consumers are ready to buy and encourage them to call through the free number.
a) Identify Web Site Visitors Who Are Ready to Buy
By looking at click streams and other online behavior, the company that the web marketing is outsourced to, would determine which ones are in a buying mood. The following questions would be answered to generate maximum leads:
What pages did the consumer visit? For how long? In which order? What, in their profile, suggests (or doesn't) that the products they researched are something they may need or want?
What else did they do that indicates a readiness to purchase ?
b) There is always a need to give them reasons to buy.
By acting quickly, the company would take steps to give consumers that last little push they might need to make a purchase. This would include sending them a follow-up email, with additional product information, a special offer, showing them the products they looked at previously when they next log on, with links to where they can find more information; and informing them what number they need to call on to book an appointment with the sales representative.
c) Measure the Results of These Efforts
The results of Steps 1 and 2 above would be measured to improve the company's overall marketing effort. The following questions would be answered to measure the efforts.
Which online offers drive the most offline sales? Which Web pages, special offers, etc., result in the most requests for appointments with sales representatives? Are Web site traffic increases correlated with increased sales?
2: Integrating a Company's Marketing Efforts with its services
It is important that the online efforts match with the sales efforts of the company. All the promises and offers made on the website must integrate well with the capabilities of the company to deliver those kinds of services.
5.4.2 Tools used for web marketing
The following tools would be used for web marketing:
- E-mail—E-mails would be sent to customers tailored with personalized marketing messages.
The messages would fit to customers' preferences, purchasing history, and browsing behaviour.
They can range from a simple "thank you for filling the form for appointment," to new product and service announcements, to special targeted offers.
- Online advertising—Interactive banner ads would be used for online advertising. Online ads would drive traffic to the site and build an online brand.
- Electronic newsletters—These digital publications would be e-mailed to subscribers and would include colorful graphics and photos. You can customize the information to specific customer or partner commitments community that use or supply your products and services—for example, include product tips and tricks section. The company would also email newsletters that include direct links to the web site. This would help to increase brand awareness and sales further. It would be made easy for recipients to unsubscribe, or "opt out."
- Loyalty, referral, and affiliate programs—These programs would offer incentives to loyal or frequent customers. They would include giving discounts or gift certificates for referrals of new customers to the site.
- Web site—The web site would act as a virtual window into our company. It would have a virtual video recorded track demonstrated how our services can make difference to their business. Key benefits of your Web site as a marketing tool are the measurability of customer interactions with the site and the ability to personalize communications based on visitors' interests.
5.4.3 Benefits of web marketing
Web marketing would expand our market, reduce costs and open new communications with the customers:
- Expanding the market—The Company's web site and web marketing campaign would expand the geographic sales coverage and open markets that might otherwise be impossible to reach. It would also allow you to expand your company's brand into areas where you do not advertise or have a physical presence.
- Reducing Customer Service Costs—A Web site can streamline customer service costs by enabling online customers to retrieve product information and pricing, as well as communicate online to our customer service representatives while making their purchasing decisions. 3.
- Additional Marketing Tools—With Web marketing, the company would be able to increase the capabilities of the marketing department to include online market research, test marketing, and promotion.
Opening New Communications with the Customer—Web marketing activities would improve information flow to the online community. The Web site and Web marketing materials— such as e-mailed newsletters—would provide customers with timely information on products, services and special promotions.
- Toll free number
- Direct marketing :
A free telephone number would be present on the websites to contact us at our Stockholm as well as Bombay office.
Brochures with letters would be sent to those companies who do not want to outsource at the moment for future reference.
iv) Share of distribution
Since this is a multilevel business plan, we would have the maximum distribution among all our competitors since none other company offers a multilevel structure for this kind of a business.
4. How is your market segmented?
The market at Sweden would be small businesses with less than 20 employees. The company would initially start with web products because India has quality and cheap IT labor. The following segments would be entered into initially:
- Enterprise Applications Services
e-Procurement and B2B Marketplaces
5. What is the existing consumer behavior?
6. How will you attract, hold, increases your market share? How will you promote your sales?
The following promotion offers would increase the market share:
- Recommend a new client offer: If a customer recommends a new customer to us who signs a contract with us then we would provide a 25% discount on the service offered to him.
- Free business advice software offer: The companies who fix an appointment with the sales representative would receive free IT advice software. The company has to answer a few questions to the sales representative and they would receive expert advice from our experts on how to make their IT structure better and easy to use. They would get a cassette disk of the software designed by our company absolutely free.
- Who are your five nearest direct competitors?
- Who are your indirect competitors?
The following companies would act as indirect competitors:
- Infosys claims that 85 percent of its business is from existing clients, a clear sign that Infosys' quality and processes are on target. To accommodate this client base, Infosys is growing rapidly and has 5,400 employees, including approximately 4,800 consultants. Out of the company's work force, 15 percent is on-site at client facilities in the US, with the balance working in India.
- Satyam Computer Services is among the top five large Indian outsourcing firms, based on revenues. The firm has a sound organizational structure, a viable growth strategy and a broad product and services offering, as well as solid client references. Satyam is also well prepared to tackle e-business application development and integration projects, having formed partnerships and alliances with such e-commerce heavyweights as Vignette, Enterprise and Microsoft. In addition, it is SEI CMM Level 5 certified and counts 150 of the Fortune 500 among its client base. Satyam's core business is application development and maintenance, with strengths in reengineering, client/server, and now e-business application development and Internet access and hosting. Satyam has 16 development centers in India, as well as one center each in Atlanta, Ga., Chicago, Ill., Santa Clara, Calif., the United Kingdom, Singapore and Japan. The firm's goal is to offer both on and offshore capabilities (thus the focus on US development centers). Satyam uses satellites for 24-hour communication through local phone lines. The development centers tend to focus on specific industry segments (banking and finance, ERP, manufacturing, and insurance). Satyam's client list includes Boeing, Rockwell, Goldman Sachs and Ford.
- Wipro Spectramind started operations in March 2000 and has more than 10 clients. The company provides call-center and remote processing services including inbound voice processes (technical help desks, customer service), outbound voice processes (telemarketing, collection calls), CRM, accounting services, transaction processing and Web-based services. Spectramind is one of the first and the largest third party Indian-based BPO companies. It became a subsidiary of Wipro Limited (NYSE:WIT) in July 2002. Its centers in Delhi (capacity of over 2,700 associates in multiple shifts), Mumbai (capacity of over 3,800 associates in multiple shifts) and
Chennai (capacity of over 1,600 associates in multiple shifts) replete with state-of-the-art infrastructure and technology that boasts of the largest setup in India.
5.6 Market analysis
1. We will be selling primarily to:
Total Percent of Business
- Private sector 85-90%
- Government 5-8 %
- Other 2-10%
5.6.1 Marketing strategies - market mix
1. What kind of image do we want to have?
Cheap but good quality customer oriented solutions.
5.6.2 Marketing positioning
- Follower versus Leader
- Quality versus Price
- Innovator versus Adaptor
- Customer versus Product
- International versus Domestic
- Private Sector versus Government
5.7 Sales Strategy
- Customer-Oriented Selling Approach - By Constructing Agreement
- Establishing Rapport with Customer - by agreeing to discuss what the customer wants to achieve.
- Determining Customer Objective and Situational Factors - by agreeing on what the customer wants to achieve and those factors in the environment that will influence these results.
- Recommending a Customer Action Plan - by agreeing that using the product/ service will indeed achieve what customer wants.
- Obtaining Customer Commitment - By agreeing that the customer will acquire your product/service.
- Emphasizing Customer Advantage
5.8 Benefits vs. Features
ORIGINS of purchase: Who buys it?
Small businesses who want to save costs as well as need on time delivery with good quality.
OBJECTIVES of purchase: What do they need/buy?
To achieve cheaper and better solutions to their current and future IT needs.
OCCASIONS of purchase: When do they buy it?
When our sales representative explains the advantages of such kind of outsourcing and makes them realize the need for it.
OUTLETS of purchase: Where do they buy it?
Our sales representative would reach the customer directly.
OBJECTIVES of purchase: Why do they buy it?
To save costs and get better quality with no hassle of monitoring the project.
OPERATIONS of purchase: How do they buy it?
They sign a contract with the sales representative and pay via check or credit card.
The following are the IT companies in Bombay which are small companies and would act as an initial market: (Reference)
- Interactive Impact Pvt Ltd
- Internet Trends (India) Pvt Ltd
- Induj Enertech Ltd.
- I2 Technologies India Pvt. Ltd.
- ICICI Infotech Services Limited
- Inter Tech Systems Pvt. Ltd.
- Infotech Solutions Pvt. Ltd.
- InfraSoft Limited
- IS3C Consultancy Services Pvt. Ltd.
- Indo United Exports Pvt. Ltd.
- Intentia South Asis Pvt Ltd
- Infotech Financials Pvt Ltd
- Indorama Software Solutions Limited
- Indian Direct Equity Advisors Pvt Ltd
- Investment Research & Information
- Technecall.com Services Pvt Ltd
- IDBI Intech Ltd
- IT Microsystems (India) Ltd
- Mediline Equipment & Computer Systems Ltd
- Macil Infosystems (Pvt) Ltd
- Jay Instruments & Systems Pvt Ltd
- Kale Consultants Ltd
- Kaytek Computer Services Pvt. Ltd.
- KPMG India Ltd.
- KS Simware Consultants Pvt Ltd
- Lipi Infosoft Pvt. Ltd.
- L&T Information Technology Ltd.
- Lawkim Private Limited
- Labh Software Pvt Ltd
- Link IT
- MoTech Software Pvt Ltd
- Micro Technologies (India) Ltd
- Maharashtra Industrial Development Corporation
- Mahindra Consulting Limited
- McKinsey & Co. Inc.
- Mastek Limited
- Melstar Information Technologies Ltd.
- Monalisa Infotech Limited
- Mphasis BFL Software & Services (India) Pvt. Ltd.
- Maharashtra Institute of Advance Electronics and Computer Technology Pvt Ltd
- Texport Technologies Private Limited
- Tufan Infotech India Private Ltd
- Trigyn Technologies Limited
- Tandon Information Solutions Pvt. Ltd.
- Twinstar Software Exports Ltd.
- Taasa Netcom Limited
- Tata Technologies India Limited
- Tata Interactive Systems
- Thirdware Solution Ltd
- Thermax Systems & Software
- Traveljini.com Pvt Ltd
- Tata Internet Services Ltd
- Tracmail (India) Pvt Ltd
- Tata Liebert Ltd
The research on the Swedish market would be conducted by the manager of the Swedish office. This is because most of the information of small Swedish companies is in Swedish language and thus needs a good knowledge of Swedish language.
3. How are their businesses: steady? Increasing? Decreasing?
These companies have been expanding and target the middle and the higher segments of the market. It is less likely that they would enter the small businesses market because of less buying power of the consumer. Their businesses are steady because most of these companies have been in the market from 1980's. Thus they mostly sell on the basis of client base and repeat customers. Long term relation building is the key to their market share.
4. What have you learned from their operations? From their advertising?
One of the most important aspects in their operations is quality. They appoint experienced IT workers and get them to develop new and innovative solutions .Most of their advertising is based on existing client base.
5. What are their strengths and weaknesses?
- Long time presence in the market: Some companies have been in the market for the last 20 years and thus have a competitive advantage of know how of the market.
- Huge Capital: If these companies who are dealing with mid and large size businesses want to enter the small business market, they can easily do so because of the large capital they own. But they might not do so because of less profitability of low market segment.
Although these companies manufacture themselves but they also refer to other companies in the IT outsourcing market.
- High costs for products and services: These companies charge a lot from the customers and thus automatically rule out the small businesses.
5.9 Pricing and Sales
Q) What are your pricing strategies?
The pricing strategy adopted by our business would be service costs and pricing based. This means that based on what an Indian company would charge us for developing the product we would charge the client. This way we would be able to make up maximum profits and can also give special offers and discounts.
6.0 Advertising and Public Relations
Q) What kind of advertising programs would you peruse?
Initially all the advertising would be based on personal visits by the sales representatives and the cold calls made by them.
7.0 The Management Plan
Q) How does the management background/business experience help in this business?
The company would be headed by CEO of a product marketing company in Bombay. The other person would be technical experts of an existing IT company who has experience in handling offshore outsourcing projects for the last 7-8 years. Thus they would have a clear idea of what kind of companies would be able to handle specific project requirements. The financial management of the company would be handled by the financial advisor of escorts. The sales team would be headed by the sales manager of idiom limited. All the above management would be in the board of directors as shareholders.
The manager for the Stockholm office and 5 other sales representatives would be appointed from Sweden by the sales manager. This would help to penetrate into the Sweden market since they would be well aware of the culture of Sweden.
Q) What are their duties?
The sales manager would be responsible for training all the sales representatives of the company. All the sales activities like sales promotions would be handled by him. The financial director of the company would be dealing with all the financial aspects of the company. The technical officer would deal with finding out solutions for projects and would be dealing with all the technical aspects like IT system features and design etc.
The marketing manager of the company would deal with directing all the offices about the company's marketing strategy.
Other staff: Based on the demand of various sector, following staff would be appointed in the Bombay office
- Receptionist: Handling all calls and arranging appointments for the management.
- Maintenance staff: General cleaning, maintenance and repair of the office.
- Technical assistant: Receiving emails, other internet related research work, setup and maintenance of the computers.
Q) What are the business current needs?
Since the business has got a huge expansion and is a new idea, it would need lot of motivation on part of the management to setup the new business. Proper execution of the plan is the most important plan at the moment. If the plan works then the business can enter into other products apart from IT and grow henceforth.
Q) What are your plans for hiring and training personnel?
The following is the plan for hiring personnel:
The first sales office at Stockholm would consist of a manager who would be the owner of that office. He would be recruited by the sales manager at the head office.
The following would be the multilevel marketing scheme of the Stockholm office. The reason for having only three levels is because Stockholm does not have as many businesses as cities like London and Frankfurt. The levels would vary according to the size of the market.
Top Level - 1 (Manager)
L e v e l 2. - 3 (Training managers)
L e v e l 3. - 9 (Sales representatives)
While expanding the business later on to cities like London, the number of personnel in a single level of management would be as follows:
Top Level - 1 (Manager)
L e v e l 2. - 5 (Training managers)
L e v e l 3. - 25 (Sales representatives)
Q) What would be the duties of these personnel in the sales office?
Client sales manager: The manager would be the owner of the business. His bonus would be based on the number of people he trains and the amount of profits he generates. Once the manager hits satisfactory targets he would have the incentive to become the regional manager.
Trainee managers: The trainee managers would be the responsible for the training and mrecruitment of the sales representatives. They would have to hit targets set by the manager to rise one level up. Initially all the trainee managers would start as sales representatives. Thus once the trainee manger appoints three sales representatives, he would have to generate a certain profit to become the manager at another office. Thus he would be given an office to run without any investment in a new city or in the same city depending on the market size.
Sales representatives: They would be appointed and trained by the trainee manager and would be promoted to a trainee manager post after generating certain minimum profits.
Q) How does your business plan solve the problems associated with multilevel marketing?
Isn't your plan a pyramid scheme?
The difference between our plan and a normal multilevel marketing plan is because of the following reason:
7.1 Scheme of management
After a year of running of a particular office and generating enough profits any employee has the benefit of becoming a fixed salary employee with bonus received on sales. This is because the market for IT production would reach a threshold and not enough sales would be made for employees to receive commission. As a result they would tend to leave jobs because of low wages. Therefore this would not be a pyramid scheme and if the employee has enough motivation to stay for a year, he would become a fixed salary employee enjoying all the benefits like holidays, pensions etc.
7.1.1 Advantages of this scheme
- Quick way to management: Many of the young graduate's students in Sweden are jobless and do want to get into some kind of management position. But they are not able to raise quick to manager levels because of many levels of management in Swedish companies. A sales representative would get into a trainee manager level within a period of 6 months. Depending on the hunger to own a business, the sales representative would become a manager of a new office within 1 year.
- All start at the same level: All the trainee mangers would start at the sales representative level. The company would not recruit anyone directly at the trainee manager level or the manager level. Therefore a new sales representative would always have a 1/9 chance of becoming a trainee manager. This is because there are 9 sales representatives and one would become a trainee manager. A trainee manager would have a 1/3 chance of becoming a manager.
- No experience necessary: Since a full training would be provided therefore no specialized experience is required for the job of a sales representative.
- Ideal for university graduates: This would be an ideal opportunity of business school graduates who want to setup their own businesses.
These figures would vary according to the size of the market.
Q) What salaries, benefits, vacations, and holidays will be offered after one year of service?
The employees will receive salaries on the basis of the post they come unto after a year of service. They would receive the same salary for an equivalent position in any other company in the local area.
8.0 Financial Management plan
The following is the financial planning for the new business:
8.1 Performa statement of equity ownership
8.2 Break even Analysis
Monthly Break-even Point
Break even point = Where line intersects 0.
The Break-even Analysis indicates Rs 1, 75,005 will be needed in monthly revenue to reach the break-even point.
8.3 Cash flow statement
8.4 Performa Income Statement
Notes to income projections: Sales projections reflect assumptions of progressively greater rollout into the market, with accordingly higher levels of sales. Heavy first-year marketing expenses level off as national distribution is achieved. Sales increase in subsequent years as the effect of initial marketing efforts is felt. Wage and salary increases after the first year need to allocate budget for it.
8.5 Performa Balance sheet
8.6 Performa cash flow statement
After having completed the case studies, reporting the findings, and finally analyzing these findings, this section will report the conclusions. The above thesis has been roughly divided into three sections. The first section has discussed the various companies that are currently outsourcing. It also discussed the best practices, the success and failure of outsourcing .This section came up with the problems that are currently witnessed with outsourcing as a result of which many small and medium companies are not willing to get into offshore outsourcing. It also proved how big is the market for small and medium sized companies who wish to outsource but are not able to because of cultural barriers, fear of loss of control and many other factors.
The second section started with the discussion of a completely new area of business management which has not been related to offshore outsourcing ever before. This is Multilevel marketing (MLM). This section explained in detail the working of MLM based companies. It also explained the problems that have been faced in MLM based networks. The discussion included cases studies of 21 MLM companies covering 4 of these in detail. It explained how MLM can be used as a very powerful tool in selling and expanding businesses with unlimited scope.
The third section came up with a solution to this problem. The solution was proposed in the form of a business plan. The business plan that would use multilevel marketing as a tool to produce offshore outsourcing. The business plan covered all the areas of a complete marketing plan. This includes marketing plan, HR plan, sales plan and financial management plan. There were a lot of factors discovered which even made the plan difficult to practically implement it. But they were carefully handled and were given the best try to resolve. It is my strong belief that if this plan is implemented it could be a new era in the field of outsourcing as well as multilevel marketing.